9 massive banks just teamed up to take the technology behind bitcoin mainstream

Nine of the world's biggest banks on Tuesday threw their weight
behind blockchain, the technology that powers bitcoin.

Barclays, BBVA, Commonwealth Bank of Australia, Credit Suisse,
JPMorgan, State Street, Royal Bank of Scotland, and UBS have all
formed a partnership to draw up industry standards and protocols
for using the blockchain in banking.

The partnership is being led by R3, a startup with offices in New
York and London headed by David Rutter, the former CEO of ICAP
Electronic Broking and a 32-year veteran of Wall Street.

Rutter told Business Insider that the plan is to build the
"fabric" of blockchain technology for banking, as well as develop
commercial applications for banks and financial firms.

The blockchain is the software that both powers and regulates
cryptocurrency bitcoin. In its most basic form, it records
ownership of bitcoin — money — and transactions — one person
paying another.

Transactions are signed off by the parties involved using the
software, then added to the blockchain, a long string of code
that records all activity.

Once other transactions are added on in front of an exchange, the
transaction is stuck there forever and can't be changed, in the
same way you can't change a brick once it's been built into a
wall.

The software cuts out the need for a "trusted middleman" to sit
in between parties in a transaction as it acts as that middleman.
This makes transactions quicker, cheaper, and easier when
compared to the current systems banks use.

Banks are therefore keen to see if it can be adapted for use with
traditional currency, rather than just bitcoin.

The blockchain uses open ledger technology, meaning all of these
transactions are free for anyone to look at and not
stashed in some private data centre in Canary Wharf. Anyone
can theoretically check to see if someone's using stolen bitcoin
and this adds a level of transparency to the system.

R3 CEO David
Rutter.R3

Top banks including Barclays, Citi,
Santander, and
UBS have all expressed interest in the blockchain but this is
the first time the banks have worked together on a project.

Rutter says he began approaching banks around 15 months ago after
visiting around 30 blockchain and bitcoin companies he was
considering investing in.

He says: "The lightbulb went off that distributed ledger
technology could be to finance what the internet was to media."

Rutter says R3 has drawn up a "wish list" of what its banking
partners want to use blockchain technology for, which covers
"everything from issuance, to clearing and settlement and smart
contracts, where the code is the contract and it saves on back
office costs."

He says: "I think broadly speaking we'll be able to demonstrate
within 1 to 2 years that the technology is fit for purpose. How
long it will take to roll that out and integrate into existing
systems is not something I know enough about to comment on.

"Our goal is to have some real examples of how this could work
within the next year — so really fast."

As part of the partnership, banks are investing in R3. Rutter
said: "I can’t reveal that but it’s been reported that it’s
several million. From my prospective of having the banks
involved, the human element is more valuable."